The ROI of risk mitigation just got stronger
Risk mitigation is no longer the cherry on top but the key ingredient to securing insurance.
Homeowners should expect a 6% increase in their insurance rates during 2024 renewals — and that’s if they’re lucky. This comes on the heels of the average annual rate increase by 19.8% between 2021 and 2023, influenced by inflation and the climbing frequency of extreme weather catastrophes — dozens of billion-dollar weather and climate disasters took place during this time period. Some of the largest U.S. insurance companies have even stopped writing coverages in high-risk geographical areas.
Risk mitigation measures such as smoke detectors and security systems that used to earn homeowners small discounts on coverage rates are now prerequisites for eligibility. Risk mitigation is no longer nice to have but the foundation for a strong coverage application.
Similarly, the rise of nuclear verdicts — massive settlements awarded to plaintiffs in liability lawsuits — have insurance providers reassessing their risk exposure in other policies including auto. Insurers are increasingly prioritizing proactive risk management strategies like defensive driving courses and vehicle safety features such as automatic emergency braking systems.
High net worth (HNW) clients who were once viewed as low risk now find themselves navigating a landscape where their properties and assets are not immune to the current high risks plaguing the insurance market.
Insurance can no longer be an individual or business’s sole source of protection against risks. Instead, the vulnerabilities of assets need to be addressed and managed through a combination of proactive risk mitigation strategies, technology and diversified risk management approaches. This trifecta will position the owner as an attractive (low) risk, and then insurance becomes an extra layer of protection.
Here are six areas that insurance professionals should look at to identify a good risk.
No. 1: Water mitigation
Water damage and freezing claims account for 23.5% of all home insurance claims, with an average claim payout of $12,514. Rather than natural disasters, water damage typically starts with leaky pipes, appliance malfunctions, roof leaks or foundation cracks. Ways of combating water risk include water monitoring applications that use smart technology to detect unusual water flows in the property and provide real-time alerts directly to the homeowner’s phone. Installing these types of leak detection systems or reinforcing plumbing systems can help prevent leaks and minimize potential damage.
No. 2: Monitoring technology
Smart home technology can monitor more than water. The real-time data on various aspects of the property’s condition, such as security, environmental factors and utility usage can help carriers assess the level of risk associated with the property, demonstrating strong attention from the owner. For example, technology capabilities now extend beyond traditional monitoring but can detect hazardous conditions such as arching behind walls, which can be a potential cause of house fires.
No. 3: Locked doors
Close to 38% of burglaries in the U.S. don’t involve breaking and entering. The simple oversight of not locking one’s door, whether to your car or your house, can lead to significant losses. Insurance companies want to know how secure a property or vehicle is and how difficult it would be to break in. Along with the simple act of locking the door, they will verify what type of door (and window) locks are in place.
No. 4: Cybersecurity
HNW individuals are at high risk of cyber threats, as evidenced by incidents like hacked bank accounts and compromised social media profiles. Families can be a point of vulnerability in these situations, whether as a way in or through their actions. Cyber bullying claims are now costing insurance companies millions of dollars as well. Implementing robust cybersecurity measures, such as monitoring apps and parental controls on devices, along with cyber insurance can safeguard against financial losses and reputational damage.
No. 5: Driving history
With advancements in automotive technology, cars are equipped with an array of safety features aimed at reducing accidents. However, the human factor remains a significant contributor to auto claims, particularly distracted driving. By prioritizing driver training and utilizing apps that optimize routes to minimize traffic and distractions, HNW individuals can mitigate the risk of accidents and demonstrate responsible driving behavior.
No. 6: Perimeter maintenance
Each state and insurance carrier maintains a comprehensive list of recommended actions for property maintenance that, if undertaken by homeowners, can yield substantial benefits. Clearing vegetation from the vicinity is one, as an ember can travel vast distances and ignite a fire. Other actions, ranging from window upgrades to roof replacements, not only enhance safety but also qualify homeowners for significant discounts on premiums.
Evolving risk demands a more strategic and integrated approach to protection, along with a broker who knows how to guide and strengthen their clients. It’s more than possible to elevate your HNW insureds to be the best risk they can possibly be. All you need is a little smart risk mitigation.
Robb Lanham is chief sales officer at HUB Private Client. He can be reached by sending an email to Robb.Lanham@hubinternational.com.
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